Indian economy: another indicator turns positive

The Composite Leading Indicators (CLIs) put out by the Organization of Economic Cooperation and Development (OECD) at monthly intervals may not have much predictive power vis-à-vis the Indian economy or markets. But, for what it’s worth, the CLI for India for the month of April shows an upturn—the first in 17 months.

India has now graduated, in OECD’s lexicon, to a “slowdown” from a “strong slowdown”. The CLI for India improved to 93.9 in April from 93.5 in March. Growth cycle phases of the CLI are defined as follows: expansion (increase above 100), downturn (decrease above 100), slowdown (decrease below 100), recovery (increase below 100), so the increase in April could be termed a recovery. The CLI thus joins a host of other indicators, such as the Purchasing Managers’ Index, the increase in auto, cement and steel sales, all of them pointing to a recovery in the Indian economy.

Interestingly, OECD says that only two countries—Brazil and Russia—are now in what it calls a “strong slowdown”. These are the only two countries that saw a deterioration in their CLIs in April. China, Canada, France, Italy and the UK are in what it calls a “possible trough”.

The CLI for India improved to 93.9 in April from 93.5 in March. Paras Jain / Mint

Rather strangely, in the “slowdown” category India has the US, Germany and Japan for company. But then the CLI measures the current position with regard to the growth trend and OECD is only saying that India’s growth relative to its trend has fallen a lot.

There’s little doubt, though, that the CLIs show an improvement in the world economy in April. The CLI for France is at 99 and Italy at 99.4, which seem to suggest these economies will be the first to fully recover. China’s CLI in April was at 94.3, its third successive month of increase.

OECD, however, is very cautious and all it says is: “While it is still too early to assess whether it is a temporary or a more durable turning point, OECD’s composite leading indicators for April 2009 point to a reduced pace of deterioration in most of the OECD economies with stronger signals of a possible trough in Canada, France, Italy and the UK. The signals remain tentative but they are present in the majority of the CLI component series for these countries.”